LONDON, March 22 (Reuters) - Fresh worries over Cyprus'
bailout problems weighed on European equities on Friday, with a
key regional index at risk of recording its worst weekly drop
since November.

Investors erred more on the side of selling stocks on signs
of any rally rather than buying on the dip due to uncertainty
over how the Cypriot situation would be resolved.

Equity markets recovered from earlier intraday lows after
Cyprus's presidency said there was an agreement with Greece on a
takeover of the Greek units of debt-ridden Cypriot banks.

But Russia rebuffed Cypriot requests for help, raising
doubts that Cyprus would secure cash to fix its debt problems.

The pan-European FTSEurofirst 300 index was flat at
1,190.72 points by around midday and at risk of recording its
biggest weekly drop since November.

The euro zone's blue-chip Euro STOXX 50 index
edged up by 0.2 percent to 2,689.78 points, but was still down
around 1 percent from last week's close.

Cyprus needs to find 5.8 billion euros ($7.50 billion) in
new money by a Monday deadline to clinch a European Union
bailout, having earlier rejected a plan to raise the funds by
taxing bank customers' deposits. If it cannot do so, it risks a
collapse of its financial system that could push it out of the
euro zone.

Most investors expect an eventual deal to help Cyprus,
leading the majority to believe that any equity market fall in
March and April will be a temporary one before stock markets
resume an upwards trajectory as the year progresses.

In the near-term, however, investors were unwilling to take
on the risk of adding significantly to equity holdings.

"The market is in a neutral to bearish phase at the moment,"
said XBZ Ltd European equity options broker Mike Turner.

Turner said clients had been buying "put" options, which
give the right to sell an index in the future and are often used
on expectations of a future market fall.

He said investors had been buying "puts" on the Euro STOXX
50 due to expire next week with strike prices ranging from 2,600
to 2,500 points - implying that some saw a possible 7 percent
fall on the Euro STOXX 50 over the course of next week.

"People are keen to acquire a bit of downside protection
into next week," he said.

TRUCK MAKER MAN FALLS

German-listed truck maker MAN SE was the
worst-performing stock on the FTSEurofirst 300, falling 4
percent after carmaker Volkswagen offered a
lower-than-expected amount to buy full control of MAN.

However, a 2.5 percent rise at BP, after the
heavyweight oil major said it would return $8 billion to
shareholders, cushioned equity markets from bigger losses.

Lee Robinson, founder of asset management firm Altana
Wealth, said a default in Cyprus would send investors to seek
shelter in assets perceived as safe, such as German and U.S.
government bonds .

Robinson has been seeking protection against possible swings
in share prices by buying implied volatility, which often rises
when investors grow more concerned about the market outlook.

The Euro STOXX 50 Volatility Index was up 4.6
percent at 20.70 points on Friday, but still below a 2013 peak
of 25.90 points.

"Volatility to me is a very underpriced asset given the
potential outcomes globally," said Robinson.

Goldman Sachs analysts said European equities were worth
sticking with on a 12-month timeframe, although they were less
compelling on a three-month timeframe.